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You only buy a house a few times in your life. So you never really get much experience. By the time you’re ready to do it again, the market has shifted and the rules have changed.

The six-year boom market in Canadian real estate is over, according to reports showing that first-quarter sales in 2008 dropped 13 per cent. Of course, none of the economists is predicting a U.S.-style real estate bust. They’re just talking about having a better balance of supply and demand.

I’m going to be teaching a course at the University of Toronto’s school of continuing education, called Buying the Right House at the Right Price, starting in two weeks. I’ll look at how to prepare yourself for one of the most intense and frightening experiences of your life. You’ll be doing battle with real estate agents, mortgage lenders, lawyers, insurers and house sellers, all trying to outsmart you. Meanwhile, you’ll be taking on probably the biggest debt you’ve ever had, stretching many years into the future.

Even if sales are slowing from the above-average pace of the past few years, I don’t expect to see a buyer’s market any time soon. But it may be a little harder for realtors to stage the big auctions, where houses get 15 bids and go for $100,000 over the listing price.

So, tell me your best and worst real estate experiences. What did you learn about protecting yourself in a rough and tumble world where everyone you deal with has more experience and knows the tricks that you haven’t yet mastered?

Here’s a lesson I discovered. Don’t pick a real estate agent because you meet her at an open house and you think she seems nice. Our agent did all the work in finding us a home, but her partner (whom we didn’t even know about) swooped in at the end to negotiate a deal. She was a barracuda, a nasty person we’d never want to see again, let alone recommend to others. Always ask the agent you know and like about the other people on the team.

11 comments

Garth Turner has been predicting a US-style housing crash for a while now. That’s not surprising, as doom and gloom helps sell books. I don’t think we will have a US-style crash. We’ll see, at best, prices level out for a few years, and at worst, a small decline in prices. But for sure, house prices won’t be going up at all for awhile for two reasons.

Firstly, regardless of what everyone says, house prices have to reflect wages. When first-time home buyers can’t afford to get in the market. there is no one left to push prices up. This is what is happening in the UK. Prices are set to drop because they’ve increased much faster than wages. Until wages catch up, house prices won’t be increasing. In Spain where I live, prices are set to drop at least 50% for that very reason. Tim Hortons wages and Toronto prices.

Secondly, regardless of what anyone says, the US is heading into the mother of all recessions. It’s going to be long, brutal and nasty and Canada is tied at the hip with the US. Where the US goes, Canada goes.

Again, this is for three reasons. First, the foreclosure tidal wave is set to swamp the middle class. Think what the NEP did to the Alberta housing market and you get an idea what the US is facing. This isn’t Garth Turner doom and gloom. (I’ll post the link from Slate later.) Basically, millions of homeowners will be seeing equity drop into negative territory and, at the same time, loan resets will double their house payments.

Secondly, oil is set to hit $160 a barrel some time this year, while $4 a gallon gasoline will look cheap.

Lastly, the baby boomers are retiring and haven’t got a penny saved. Projections are in the next 10 years that Medicare will take up 100% of the US budget. If, as expected, a Democrat wins the White House, then taxes are going up a lot. When taxes go up, economic growth drops.

I bought my first house last year at age 48. I was under the misconception that if a home you want to buy is listed by a particular realtor, you have to purchase it through that realtor. Not so!

I have a friend who’s a real estate agent, who acted on our behalf — effectively working as a buyer broker. That made the whole experience far less daunting for us. She worked with the realtor who had listed the home and negotiated with him on our behalf. She guided us through the process, looked up the values of all the other homes that had been sold in our neighborhood in recent years as a benchmark, and advised us on what we should offer.

We really wanted the house, and while she respected that, she also pushed us to negotiate a much harder deal than we would have otherwise. She played hardball with the other realtor and the seller, and while in the end we only saved $25K compared with the asking price, I think without her we wouldn’t have saved nearly as much, nor would we have had the courage to ask the seller to repair all the things she demanded them to fix before we agreed to the sale. She and the other realtor split the commission.

Of course, we were lucky to have a friend in the business; without her we would have been totally at the mercy of the realtor. But the basic process we used was similar to that of hiring a buyer broker (which is common in the States, not sure about Canada).

We were also lucky enough to stumble upon an excellent notary who guided us through the signing, explaining everything in clear detail so we knew what we were getting ourselves into. Our experience with her was so positive that we’ve also asked her to handle drawing up our will.

Another stroke of luck was finding a top-notch home inspector. He too played hardball and confronted the seller (who was a contractor that had renovated the place) about a number of things he felt had been done wrong. I thought they were going to come to blows during the inspection!

The inspector spent several hours going through the house and wrote up an incredibly detailed report, complete with photos, that we then used as a negotiating tool to bring down the price of the house and to get some work done.

I’ve learned not to share any information with a real estate agent if I don’t want the other side in the negotiation to know about it. Real estae agents are incented to close deals quickly. Many will say what they have to (and share information with the other side) if it gets the deal done faster.

A mistake I’ve made and have seen others make is to treat my agent like a friend and confide in them. Someone might say to his agent “I’m going to offer $275,000, but I’m willing to go up to $295,000”. You have to assume that this information will be used by the agents to manipulate both parties get the deal done faster.

Ellen,
As a friend, I would caution you not to assume that there will be an orderly correction in the Canadian market. There may be, but since prices have not gone up on a rational basis, they may go down rapidly and severely.

Nobody knows, but in the kind of recession that is being widely predicted in the US, Canada could not fail to be affected, and in such circumstances, property prices do not usually hold up, let alone prices inflated by a real estate boom.

Canada does not have a unified property market, and while in a given set of circumstances, prices might come down slowly and moderately in Calgary and Winnipeg, they might well crash in Vancouver and Toronto.

I was present in Victoria in the 1980s when prices went down by up to 50%, and (by dumb luck) profited by it. I also observed two crashes in Vancouver in the 1980s and 1990s when prices went down in the 40 to 50% range. I’m not saying that it will happen again, but it could.

The best experience my wife and I have had was when purchasing our first house, which was “for sale by owner”.

We were fortunate to find a mortgage broker and lawyer’s office who were excellent in holding our hand throughout the process (and what a process it is for a first timer!). Since then, we have bought two more houses using a realtor.

I would have to agree with the above commentor in regards to limiting what information you offer your realtor. After all, they say they “work for you”, but they also work for themselves and want to make the deal so that they can get paid.

Our last realtor we used when selling was not to happy to hear that we were not willing to go lower than the asking price, as we weren’t required to sell. We were able to finally secure the full amount after going back-and-forth about 10 times with the potential buyer’s realtor.

I would also agree to not just use the first realtor you find at an open house to sell your current house. We seem to attract the newby realtors, who may not have the experience to deal with certain situations (although it all worked out in the end).

I would suggest that the buyer or seller get involved and do as much research as they can themselves in regards to the process of buying or selling.

1. People seem to be under the impression that purchasing a home from the listing agent will get you a deal. It usually will not. Moreover, it creates issues with Agency… who is the Agent (Realtor) representing best, the Seller or the Buyer?

I’ve been a Realtor for 5 years and honestly, the part I like about my job the least is dealing with other Realtors who are, shall we say, somewhat lacking in the professionalism and ethics department – of which there are many. Some have their own TV shows. Put another way, I work in an office with over 100 Realtors. There are perhaps 2 or 3 that I would want to work for me.

2. Before selecting a Realtor to work for, be up front with them and “interview” them. Or interview more than one Realtor, and see if there is a match – whether you can see yourself working with this person. Ask your friends and family if they could recommend someone – or to perhaps avoid someone.

3. Do NOT use Realtors as a library source and then turn around and use a friend or someone else who is an Agent to work with. Again, be up front with them and they’ll usually be up front with you. The golden rule would seem to apply – treat people as you’d like to be treated.

4. Work with ONE Realtor. Why have 4 or more Agents out there scrambling looking for something for you, when you only intend on working with one of them?

5. Familiarize yourself with a Buyer Representation Agreement. I will not work with anyone without it – and have turned down clients that will not agree to it before working together. It basically outlines a committment between client and Realtor to work exclusively with each other. You’re going to be signing it as part of any purchase agreement anyway, so it’s best to find out what it is and how it works from the start.

6. GET PRE-APPROVAL from your lender BEFORE starting your search. The better Realtors won’t work with you unless you have one, and it tells you how much you can afford and what price point you should be looking at. Why spend time and money (gas isn’t cheap) looking at houses the bank won’t approve you for? If it ain’t in your budget, theres not point in looking at it – even if you’re “curious”.

7. They’re on the wane, but don’t get sucked into the multiple offer trap. With your Realtor, decide on your max and stick with it. Theres more than one house out there. ALWAYS, ALWAYS get a home inspection, and make the offer conditional on that being satisfactory. You’d be amazed at the number of people who’ll spend half a million on a house but won’t spend $400 on an inspection to ensure that the house isn’t a money pit.

8. Listen to the advice of your Realtor when you’re selling. If they suggest that you paint over the faux finish you did yourself in your foyer that you’re so proud of, please paint over it. Get rid of the thimble collection, wedding pictures and stuffed previous loved pet sitting on the mantle. They give potential buyers too much to distract from the reason they’re there.

9. Clean like you’ve never cleaned before. It goes without saying that beds should be made, toilets flushed and any funky odors dealt with. I still remember showing a house, and walking into a bedroom and seeing an unmade bed, with a dirty spoon lying in the middle of it. Too many unwanted visuals. Similarly, I see a lot of homes for sale where you’d think the last person that left did so in a body bag.

10. Don’t fall into the “rolling this or that expense” into your mortgage. Why still be paying for appliances years after they’ve gone to a landfill? Similarly, be careful with the 40-year mortgages. Yes, they appear to make payments more affordable, but look at all that extra interest you’re paying over those 40 years. Prepay when you can, pay weekly or bi-weekly if you have to – or perhaps put off purchasing entirely until you can better afford it!

Finally, because it seems most people ask about commissions before the pleasantries are finished being exchanged, ask yourself whether a Realtor that will reduce his or her commission easily when you ask, will really negotiate on your behalf to get the best price for your home. If they don’t think they are worth what they are asking to work for you, will they hold out for the best price for your house?

If you feel that you’ve been mistreated or that something is amiss in your dealings with a Realtor – file a complaint with the Ontario Real Estate Association (OREA), CREA-the Canadian Real Estate Association, or the Real Estate Council of Ontario (RECO).

Check RECO’s website to ensure that your Realtor isn’t one of those listed there for disciplinary action for violation of both industry rules and in some cases, some heavy duty laws.

There are strict rules that all Realtors are supposed to abide by. If you tell me that you’re willing to go up to a certain price and I tell the Listing Agent that, I’ve violated one of the most important fudiciary duties there are.

I’ve been in the real estate world, as a homeowner, investor, lawyer and mortgage broker for 25 years. I can’t stress enough the importance of having your own agent when buying a house.

Those that think they can do better by dealing with the listing agent directly are only kidding themselves. The need to find and work with a recommended realtor who is motivated to work for you and get you a home that is best for YOU cannot be overstated. Great work Ellen!!

My realtor told me I was buying a rectangular lot with own well and access, told me not to worry about a survey, that the property boundaries would be marked for me once the snow went. She came out and put stakes in and told me these were the boundaries.

I recently went to sell the property, did a real property report and found out that the well, my front yard, and access road belonged to the neighbor.

I can’t do anything with the property now, not even enter to maintain it, as the neighbor turned out to be an awful person and has kicked me off the property.